The economic release schedule for the week of May 20th is as follows:
- Monday: Chicago Fed National Activity Index
- Tuesday: ICSC-Goldman Store Sales
- Wednesday: MBA Purchase Applications, Existing Home Sales, Ben Bernanke Speaks, and FOMC Minutes
- Thursday: Weekly Jobless Claims, PMI Manufacturing Index Flash, FHFA House Price Index, News Home Sales, Kansas City Fed Manufacturing Index, and Fed Balance Sheet
- Friday: Durable Goods Orders
I spoke with Gordon Charlop Ph.D., Managing Director, Rosenblatt Securities, and frequent CNBC commentator, about what he will be watching. On the economic calendar this week there are a few key pieces of data Charlop will focus on, including the overall market, weekly jobless claims, housing data, and the Federal Reserve’s next move.
Overall Market
Charlop believes the rising equity markets belie a demand for credit, despite Europe's recession. Investors globally don’t have anywhere else to put money to work. “We are seeing globalization of capitalism,” he says. India, China, Russia, the Far East, and even Venezuela, countries that were historically resistant to capitalism are all getting involved with the best system in the world. Investors are tired of being left behind. This further reinforces that the US is the driver of capitalism-it is not perfect, but it’s the best option available. Charlop expects capital inflows, particularly from the retail investor into equities, mostly through ETF’s.
Weekly Jobless Claims
Recent claims numbers were higher than forecasted and Charlop was not surprised. “Bad news is good news, as the Federal Reserve will continue to provide stimulus, and they could go on until 2015,” he says. Charlop expects the numbers to continue to be bumpy, but the trend will remain down, as the economy slowly improves.
Fed’s Next Move
The Fed is the main driving force behind this market and that is why investors continue to be bullish on equities. The central bank's mandate of 6% unemployment and 2% inflation is still in effect. The concern is how the agency will wind down its stimulus program. Charlop explains that if small businesses are doing well and unemployment improves, the Fed will remove the stimulus in tranches; Charlop believes doing it that way will not have much of an effect on financial markets. However, if the central bank curtails its asset purchase program without these factors being in place, we could see a pullback in equities, although he highly doubts this will happen. Charlop mentioned providing stimulus is much easier to do than withdrawing it.
Housing Data
Regional problems skew data says Charlop. Some areas took a beating during the downturn and are not recovering as well as other areas. He is starting to see a reduction in foreclosure numbers. On the calendar this week are a couple pieces of housing related data, including S&P Case-Shiller HPI, MBA purchase applications, and pending home sales data. It will take time to fully recover as there are no short cuts. Charlop said he is not in favor of government intervention in the housing market - for example, the deduction available under mortgage interest rates for example are prolonging the recovery.
